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I think JSBangs's answer is probably correct, but I wanted to clarify that in some cases it may be incorrect, depending on the context. It depends what the pronoun "it" is meant to refer to. If "it" refers to the stones, then it should be "they" since there are multiple stones. However, consider the following:

The ring was quite impressive, solid gold with many fine rubies. The stones were small, but its value was great because of its age.

In this example "the stones" refers to the rubies, which are small, but the ring is nevertheless still valuable. In this example "it" refers to the ring and it using "their" instead would change the meaning of the sentence. So depending on the context, either word might be correct.

My 3rd grader has the same question in her grammar book and the answer key says the correct answer is their. Like others have stated it would be their because the pronoun is referring to the stones (plural).

Non-living things are used as possessives all the time.
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JSBձոգչNov 17 '10 at 6:06

I think you got me wrong. I said that non-living things cannot be used as living things. e.g. - 'The table's legs are broken' is incorrect because table is non-living.
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SidNov 17 '10 at 7:43

10

I don't know where you got the idea that non-living nouns cannot take possessives, but that is totally wrong. I cannot imagine any dialect of English in which "the table's legs are broken" is not perfectly valid. Whether a noun is living or not has little to no effect on its use with possessives or pronouns.
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Jon PurdyNov 17 '10 at 10:44

@Jon, I think you are overstating the case. I think there is a tendency to restrict 's to animate possessors, though it is not the definite rule that SidCool states. But this certainly does not apply to 'its' or 'theirs'.
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Colin FineNov 17 '10 at 17:14